Stocks

Value Line Low Total Return Screen (9/27/2013)

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Not Much To Write Home About

For the first time in recent memory, there are no “materially weaker” companies in this week’s roll call. But before launching into celebration and exuberance, there’s not many “materially stronger” companies on the list … and the downward adjustments, albeit lower in magnitude … still manage to deliver a slightly lower overall return forecast for the group. There were slight reductions in the long-term forecasts for a number of home builders, including the likes of Pulte (PHM) and D.R. Horton (DHI).

The issue 6 update is usually a little more stable — as the outlook and fundamental characteristics of steady, reliable companies like Procter & Gamble (PG), Kimberly Clark (KMB) and Colgate-Palmolive (CL) are always less volatile.

In the words of 2012 Groundhog Champion, Bernie Meister, “it’s about time that these research agencies upped their outlook on Lumber Liquidators.”

At the same time, the average price-to-fair-value ratio at S&P for the companies in this week’s update batch is 110%. So if you’re going to shop among them, shop well.

Companies of Interest

Materially Stronger: Covanta Holding (CVA), Lumber Liquidators (LL)

Materially Weaker: None

Market Barometers

The median Value Line low total return forecast (VLLTR) sagged slightly to 4.3%, down from 4.4% last week — and continuing to hover near historical lows.

The Wilshire 5000 continues its march to new highs. Remember … the relative strength index (RSI) is signaling potentially overbought at RSI>70 — but can stay in this condition for a very long time. Momentum is still solid with the average stock up 22% over the last nine months. Continue to shop for high-quality with sufficient returns as protection versus the next correction, recession and/or bear market.

Value Line Low Total Return Screen (9/20/2013)

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Hey There … Canadians & Communication

This week continues the trend with more companies featured with weakening long-term return forecasts compared to those that can be deemed “Materially Stronger.” In general, we continue to see across-the-board modest erosion of fundamentals all the while the market “froths” its way to new all-time highs. Keep shopping (momentum is obviously intact) but be careful out there — focus on seeking high-quality candidates.

We’re not as high on BCE (BCE) (think Bell Canada) as Value Line but this provider of communication services to residential and business customers in Canada is compelling with a 4% yield. Value Line may have the low total return forecast in the range of 12%, but factoring in expectations from S&P, Morningstar and the analyst consensus leads us closer to high single digits. As shown in the accompanying chronicle (time series of return forecasts, quality rankings & stock price) BCE trades in a fairly tight range … has seen a downward draft in stock price (with a corresponding boost in return forecast) … and has generally improving quality characteristics.

Inteliquent (IQNT) makes an appearance here as “materially stronger” and has been something of a community favorite for a while. Investors will recognize the company as the company formerly known as Neutral Tandem. Long story short, the company has been under investigation for accounting practices (recently cleared) was expected to need to restate results for multiple years (as it turns out, it doesn’t) and recent analyst estimates have been surging in positive directions as shown here.

Some of you will remember our deep value story on Select Comfort a while back. Nutshell: Sometimes companies crater. Sometimes those companies have decent financial strength (B+ or better) with NO long-term debt.

Last we checked, Select Comfort had rebounded several thousand percent from its lows.

In the case of Inteliquent, we may be looking at a rebound-in-progress. Decent financial strength (B+) and NO LONG–TERM DEBT. In the words of Value Line, “… the result of the investigation was favorable and asserted that no financials would need to be restated. These unranked shares may appeal to patient investors. Based on the earnings growth we are envisioning in the years ahead, the stock should continue to rebound over the pull to 2016-2018.”

Companies of Interest

Materially Stronger: Rite Aid (RAD), Inteliquent (IQNT)

Materially Weaker: Titan (TWI), Windstream (WIN), Pharmerica (PMC), Arris (ARRS), Polycom (PLCM), Superior Industries (SUP), Bioscrip (BIOS), TRW Automotive (TRW), Sprint (S), Regis (RGS)

Market Barometers

The median Value Line low total return forecast (VLLTR) remained at 4.4% this week.

Next Week’s Event

The September Round Table featuring selection and analysis of the knight’s favorite stocks right now will be held next Monday night, September 23 at 8:30 PM ET. For more information and to register, go to: http://www.manifestinvesting.com/events/129-round-table-september-23-2013

Value Line Low Total Return Screen (8/16/2013)

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Companies of Interest

Materially Stronger: Google (GOOG), Symantec (SYMC), Pandora (P), Fiserv (FISV)

Materially Weaker: United Online (UNTD), Microsoft (MSFT)1, Paychex (PAYX)2, Principal Financial Group (PFG)

1 – smaller reduction in expectations from $45 to $40 on the long-term forecast.
2 – smaller reduction in expectations from $50 to $45 on the long-term forecast.

Market Barometers

The median Value Line low total return forecast (VLLTR) is now 4.3%, down from 4.4% last week.

You could sub-title this one, ROC and Roll. Yes, stock prices are widely overbought (RSI>70) but the challenge is that they can stay this way for a very, very long time.

Yes, we think it’s prudent to selectively sell and trim lower-quality stocks from portfolios as conditions merit — but so long as the momentum persists, this still doesn’t feel like a run for the hills moment. I might trim carefully, but I’d not significantly raise cash until the rate of change (ROC) approaches and crosses over zero.

If that ROC crossover combines with a sub-zero swoon for the $USHL indicator (with return forecasts still at historical lows), I’d go into “capital preservation mode” on all personal accounts.

Value Line Low Total Return Screen (6/21/2013)

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Companies of Interest

Both CVS (CVS) and Walgreen (WAG) have low total return forecasts of 8.5% during this week’s update. But this week’s nod/tribute is to those of you who have suggested that it was feasible that Rite-Aid (RAD) with its lowest-in-field quality ranking had a viable chance of recovering and cited a change in management that has steadily been working to improve conditions over the last few years. Although still a work in progress, profitability appears to have found thin black ink. Rite-Aid is now at $3.00 up from lows of $0.20 (+1400% since 2009) and some turnaround speculators have been rewarded.

The three companies with the highest fundamental and technical rankings are; Telefonica (TEF), Gentex (GNTX) and Qualcomm (QCOM).

Materially Stronger: Arris Group (ARRS), LKQ (LKQ), Rite Aid (RAD)

Materially Weaker: F5 Networks (FFIV), Nokia (NOK), Frontier (FTR), Cincinnati Bell (CBB), Telephone & Data Systems (TDS), U.S. Cellular (USM)

Market Barometers

The median Value Line low total return (VLLTR) forecast is now 6.2%, down from 6.3% last week.

In a normal distribution, the mean plus or minus one standard deviation covers 68.2% of the data. If you use two standard deviations, then you will cover approx. 95.5%, and three will earn you 99.7% coverage. The median low total return forecast since 1999 is 8.5% with a standard deviation of 3.5%. This means that approximately 70% of the time the low total return forecast will be between 5-12%. 96% of the time, the overall low total return forecast will be between a low of 1.5% and a high of 15.5%.

The excursions “north” of 20% (i.e. March 2009) lie outside the 99.5% probability range, because a three standard deviation swing to the upside would be 19%. This is one of the reasons that March 2009 was a back-up-the-truck, perhaps once in a lifetime buying opportunity.

Bottom Fishing (6/13/2013)

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In this month’s cover story, we took a closer look at one of the screening methods used by Hugh McManus. In a nutshell, he searches for high-quality companies trading near a selected low price. The current price is compared versus a selected low price which is dependent on the company’s growth rate. The higher the growth rate, the further back Hugh goes in history to compare.

The following results illustrates why he’d avoid Apple (AAPL) and keep in mind that he’s generally disinterested unless this ratio (price-to-selected low price) is less than 25%.

Position screen 20130613

Apple (AAPL)

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With products that are pervasive and ubiquitous and the #1 ranking in our MANIFEST 40 most widely-followed stocks, it’s time for Apple to join the Solomon Select tracking portfolio. We’ve waited patiently for the stock price to drop from $705 to $400 and the fundamentals are still very much intact. Our anecdotal analysis of price disruptions on the heels of relative strength breakdowns and breaches in momentum suggests that the worst may be over.

On a CNBC appearance yesterday, Jeff Gundlach confessed that DoubleLine is now “long” Apple after rocking the investing world with his expectation of $300-something while it was soaring in the upper $600s 9-10 months ago.

Growth, Profitability, Valuation

The Manifest Investing sales growth forecast for AAPL is 14.2%.

We’re using 23.2% for the projected net margin. Value Line has a 3-5 year projected net margin of 26.6%.

The median P/E for the period 2008-2017 is 15.2×. We’re using 14x for the projected average P/E.

At the time of selection (5/31/2013), the stock price is $449.73, the projected annual return is 20-21%. The quality RANKING is 98 (Excellent) and the financial strength rating is 90 (A+).

The company has historically held no long-term debt but recently committed to low-interest rate bonds as an offset vehicle (tax optimization) to ‘proxy’ a repatriation of offshore cash reserves to fund buybacks and dividends for shareholders.

Points of View

Morningstar has AAPL with a fair value of $600 for a price-to-fair value ratio of 74% and rates the company a “buy.” S&P rates the company a “strong buy” at fair value of $473.20, or a P/FV of 94%.

Value Line Low Total Return Screen (6/7/2013)

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Companies of Interest

All things considered (e.g. return forecast, quality, sentiment, momentum) Total (TOT) still ranks as a favorite among this group of study candidates. S&P agrees, checking in with a fair value of $51.40 and a “buy” rating. Stockcharts.com yields a “bullish” point-and-figure rating with +42.4% price pressure. There is modest potential for P/E expansion and neutral with respect to margin enhancement.

Materially Stronger: American Vanguard (AVD), Conoco Phillips (COP), Ferro (FOE)

Materially Weaker: Walter Energy (WLT), Suncor Energy (SU), Kronos Worldwide (KRO), SBA Communications (SBAC), Viasat (VSAT)

Market Barometers

The median Value Line low total return forecast (VLLTR) is now 6.4%, down from 6.5% last week.

Value Line Low Total Return Screen (5/17/2013)

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Companies of Interest

Materially Stronger: Cognizant Technology (CTSH), Legg Mason (LM), ACI Worldwide (ACIW), AON (AON), Amazon (AMZN), Mastercard (MA), Yahoo! (YHOO), Bank of America (BAC), AOL (AOL), LinkedIn (LNKD)

Materially Weaker: Baidu (BIDU), Bank of Hawaii (BOH), RealNetworks (RNWK)

Market Barometers

The Value Line low total return forecast is 6.7%, unchanged from last week.

Mindray Medical (MR)

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Mindray Medical (MR) is a developer, manufacturer and marketer of medical devices. From its main engineering and manufacturing base in China, and through a global distribution network, Mindray supplies a broad range of products across three segments:

  • Patient monitoring and life-support products
  • In-Vitro diagnostics
  • Medical imaging systems

 

Nothing wrong with these fundamentals … trends in place, growth at 15%, net margin forecast at 18% and a reasonable projected average P/E in the 20x range.

The recent price gains have “consumed” some of the return forecast — but the PAR is still at relatively high levels, particularly when considering the median return forecast (MIPAR) is near 6%.

Although Mindray is pushing towards long-term resistance and an overbought RSI, there’s a chance that the persistent fundamentals (see business model analysis) will finally “take out” the resistance level. Momentum (ROC) has been strong so we disregard the RSI levels.

Mr 10yr 20130510

Ira Sohn Stock Selections (2013)

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About The Conference

Since 1996, the world-renowned Sohn Investment Conference has been the premier investment forum, bringing together the world’s savviest investors to share fresh insights and strategies in support of pediatric cancer research and treatment.

Wall Street’s best and brightest investors participate in this unique, “must attend” event to share their expertise with an audience of more than 3,000 people, comprised of portfolio managers, asset allocators and private investors. Most speakers manage large proprietary investment portfolios that have outperformed the market for many years and do not share their insights in any public forum, but they volunteer their time to the Conference for the benefit of the Foundation. All contributions support the Foundation’s mission to support pediatric research and care.

Notes From The Ira Sohn Conference 2013 (via Joshua Brown)

Motley Fool – Sohn Ideas

Gundlach shorts Chipotle, Einhorn goes OIS (Forbes)

WSJ’s Live Blog (Wall Street Journal)

Lincoln center sohn 2013

I wasn’t invited to share any investment ideas, at least not until next year — so here’s my 2013 Sohn Shopping List — we’ll take a look at some of these.

These screening results are based on:

  • MANIFEST Rank in top percentile (MANIFEST Ranking >= 99)
  • Positive Price Momentum (Rate-of-Change, ROC, technical indicator)
  • Positive Price Pressure (based on PnF price target vs. current price)

Sohn shopping 20130510

Here’s the roll call of selections based on $100 invested in each idea at the close on 5/7/2013 (immediately preceding the conference). Note that a number of selections are not covered (at least not yet) by MANIFEST and that the entries in red are short sale suggestions by Messrs. Chanos, Gundlach and Jacobson. It’s not unusual to see an event or listing of stocks like these hedge fund selections to include a number of Jeremy Grantham’s flaky stocks.

And Ackman’s selection of Procter & Gamble (PG)? C’mon, man. Ack. We can only assume he’s too preoccupied with his Icahn jousts to avoid phoning it in. Nothing against PG, great company, but at a return forecast in low single digits?

Mindray Medical (MR) is our entry with honorable mention to Fossil (FOSL) and Synchronoss Tech (SNCR).

http://www.marketfolly.com/2013/05/notes-from-ira-sohn-conference-2013.html